Other Definitions
viatical (dict)
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ViaticalViatical, or a life settlement, is the sale of a life insurance policy by the beneficiary of the policy, before the policy matures. Such a sale, at a price discounted from the face amount of the policy but usually in excess of the current cash surrender value, provides the seller an immediate cash settlement. Generally, viatical settlements involve insured individuals with a life expectancy of less than two years. The life settlement market is currently focused on individuals with life expectancies of three to ten years. A life settlement can be an innovative wealth and estate planning tool, especially when the policy holder encounters changed circumstances, such as bankruptcy, divorce, unaffordable premiums, change in tax laws, or a serious or life threatening illness. From the perspective of the investor, purchasing a life settlement is similar to buying a bond with a negative coupon and an uncertain redeption date. The return depends on the seller's life expectancy and when he or she dies Viatical settlements grew in popularity in the United States in the late 1980s, when the AIDS epidemic first hit. The early victims of AIDS in the U.S. were largely gay men, many of whom were not particularly old. They often had no wives or children (the traditional dependents in a life insurance policy), but they had life insurance policies through employment or due to other investment activity. The dependents on the policies were often their parents who did not need the money. Viatical settlements offered a way to extract value from the policy while the policyholder was still alive. At the time, the AIDS mortality rate has very high, and life expectancy after diagnosis was typically short. Investors were reasonably sure that they would collect in a relatively short time. This combination of events caused a surge in viatical settlements as both investors and viators saw an opportunity for mutual benefit. Viatical settlements eventually developed a bad reputation in the investing community. The companies that purchased them from policyholders typically resold them to individual investors. Salesmen were paid large commissions to push the settlements, which were not conventional investments and which were misunderstood by many investors. The government regulatory agencies had little experience and few regulations dealing with viatical settlements, and the industry attracted some unscrupulous dealers. Despite the bad experience of some investors, viatical settlements remain an often valuable tool for the personal financial management of many ill people. A 2002 study showed that among hospice financial counselors who have had experience with viatical settlements, most report positive experiences.
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